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Dear sir,
I have problem regarding the tax credit offered by the tax authority to Lamri.
From my under standing, as Strymon paying taxes at 42%, plus 10% withholding on remitted dividend, the total tax credit Lamri got from Strymon’s remits is $419,000 (2280,000*42%+992,000*10%-2280,000*28%). Should this tax credit be used to deduct Lamri’s tax of the year?
That means an added back amount to the cash flow, then the dividend capacity should be $ 7962,000+419,000=$9275,000Can you please help me on it?
Thank you so much in advance.
Because Lamri’s tax rate is 28% the most tax credit they can get is 28% (they won’t be given back the extra paid in Strymon’s country where the tax rate is 42%). So effectively there is no more tax to pay in Lamri country (but no repayment).
(That is the way tax treaties always work – you only pay any extra tax due (so if Lamri country’s rate was higher than Strymon’s they would have to pay the extra), but you don’t get tax back if it is the other way round)
Hi John,
For the additional tax Lamri needs to pay on the dividend from Magnolia (6%x5.4million), why does it not account for only 75% of the PBT as the dividend given to Lamri is only 75%.
Note 4 of the question says “the tax authorities where Lamri is based charge tax on profits made by subsidiary companies but give full credit for tax already paid by overseas subsidiaries.”
Hi John, I see that you are saying this note is relating to the additional tax payable. However, I still don’t understand what this note means. Does it mean that the tax authorities where Lamri is based in will charge additional tax on 100% of the profits made by subsidary companies because of their stakeholding. Giving full credit for tax already paid by overseas subsidiaries” means that they will allow the tax paid by overseas subsidiary to offset the tax to be paid at home country’s tax rate.
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